Feb. 2 (Bloomberg) -- The Tokyo Stock Exchange suffered its
biggest disruption in six years as a computer glitch halted
trading in 241 securities including shares of Sony Corp. and
Hitachi Ltd., leaving investors concerned the bourse isn’t ready
for a merger with its Osaka rival.

Trading resumed at 12:30 p.m. local time, about 4 1/2 hours
after the bourse detected the error, which bourse spokeswoman
Yukari Hozumi said was in one of eight servers that sends order
information to investors.

Preventing a reoccurrence is the top priority before the
proposed merger with Osaka Secuturities Exchange Co., said TSE
Senior Managing Director and Chief Information Officer Yoshinori
Suzuki at a media briefing in Tokyo today. “We may need to
review our system carefully before merging with TSE,” said
Osaka spokesman Masahiro Yada by phone today.

Today’s breakdown follows a Dec. 29 blockage in networking
cables which slowed execution and is the worst since a 2006
glitch derailed all trading. Tokyo Stock Exchange Group Inc. and
the Osaka venue cited cost savings from integrating computer
systems as a reason for merging when they announced the takeover
bid on Nov. 22. This is the busiest week for earnings reports by
companies in the Topix Index.

“Unless they convince the market they’re doing everything
to fix this and make sure it doesn’t happen again, the merger
may face difficulties,” said Yuuki Sakurai, chief executive
officer at Fukoku Capital Management Inc. in Tokyo, which
manages the equivalent of $7.4 billion. “It calls into question
the reliability of the system. If the market were booming and
economy was growing maybe nobody would care. But these days you
need to be able move quickly and to do that you need a stable
system.”

Back-Ups Failed

The error, discovered around 1:27 a.m. today, occurred in a
server supplied by Fujitsu Ltd. and automatic back-ups didn’t
function properly, Hiroaki Uji, a bourse director said. The
exchange is still investigating the cause, he said. The cost of
the stoppage to investors hasn’t been determined yet, said TSE
Managing Director Hironaga Miyama.

Only those securities whose order information is handled by
the stricken server were affected, according to Hozumi at the
exchange. Trading in the equities was halted on the Sapporo
Stock Exchange and on alternative venues including SBI Japannext
and Chi-X Japan Ltd.

“The glitch is too big,” said Kazuyuki Terao, chief
investment officer of RCM Japan Co. “It may be understandable
to a degree if it happened with something unusual taking place,
like an earthquake. But it happened on a normal day, and you
have to say that’s pretty unfortunate.”

Sony Reaction Stymied

The system error robbed investors of a chance to react to
Sony’s announcement yesterday that it was replacing chief
executive officer Howard Stringer as the company is set for its
longest streak of annual losses since listing in 1958. During
the Tokyo halt, shares of Sony rose 0.7 percent in Osaka, where
volume in the stock was 15,000 percent of the three-month
average, according to data compiled by Bloomberg. Sony fell 1.2
percent when the suspension was lifted in Tokyo.

“There must have been people who were dying to trade Sony
shares today,” Terao said. “They were left between a rock and
hard place if they couldn’t sell the shares.”

The Tokyo exchange introduced its faster Arrowhead system
in January 2010 amid growing competition from alternative
trading platforms such as SBI Japannext, Chi-X Japan.

Today’s malfunction forced the Sapporo Stock Exchange to
suspend the affected securities due to system trouble, according
to a statement on the bourse’s website. The TSE’s Hozumi said
that trading was stopped at its rival because their servers are
linked to a part of Tokyo’s system that experienced problems.
Bourses in Nagoya, Fukuoka and Osaka don’t share the link, she
said.

Chi-X, SBI Japannext

Chi-X Japan also could not trade any of the halted names,
Beth Haines, a spokeswoman for Chi-X in Tokyo confirmed. She
declined further comment.

“These stocks were halted entirely in the market, so we
halted as well,” SBI Japannext Chief Operating Officer Hiroshi
Sensaki said by e-mail. Transactions on the Osaka exchange
weren’t affected because it uses a different system to the TSE,
spokesman Yada said.

“We haven’t experienced major system troubles since
2002,” Yada said. “The trading system is the most important
infrastructure for exchanges, so we may need to review our
system carefully before merging with TSE.”